The federal Competition Bureau is launching a market study into the Canadian airline industry with the goal of improving the cost and quality of air travel.
The bureau announced this week it will look into three key issues including the state of competition in the industry, barriers to entry and “impediments to Canadians making informed choices” on air travel.
Anthony Durocher, deputy commissioner of the Competition Promotion Branch says his team is conducting a deep dive into competition issues after announcing its study in late May and accepting more than 1,400 submissions on its scope until mid-June.
“We know it’s important for consumers, we know it’s important for the Canadian economy and, you know, there are four factors that inform this in particular, one of which we know is a concentrated sector, with Air Canada and WestJet having the lion’s share of the market,” Durocher said.
“Number two, we’ve seen an uptick in consumer complaints from Canadians in the sector in recent years. Number three, there’s evidence that suggests prices in Canada may be higher than in other countries and four, we’ve seen newer, smaller airlines struggling to make it in the sector.”
Durocher pointed to the recent bankruptcy of low-cost airline Lynx Air.
Maciej Wilk, interim CEO of discount carrier Flair Airlines, says the study is “long overdue,” noting his team is expressing optimism this study could help smaller companies challenge Air Canada and WestJet.
“And one of the reasons for this is simply the cost of travelling in Canada is too high. I don’t mean like the cost of the air operators themselves, but mostly the infrastructure and all the services that are controlled by the government but necessary to deliver the service,” Wilk said.
The bureau says Air Canada and WestJet command about 80 per cent of the domestic market and fares “may be relatively high.”
All the while, the number of passenger complaints lodged with the country’s transport regulator has reached new highs, topping 72,000 and resulting in wait times of up to two years.
‘Highly uncompetitive tax and regulatory environment’: WestJet
Andrew Gibbons, vice-president of external affairs for WestJet, cites his employer’s airline as the “only entrant in this challenging market that has succeeded long-term, disrupting a dominant incumbent.”
He says the terms of reference for the study fundamentally ignore many of the key barriers unique to Canada and truly driving up the cost for Canada’s air travellers and reducing competition in Canada’s air travel market.
“The reality is Canada has a highly uncompetitive tax and regulatory environment, which is stifling competition and increasing costs to Canadians,” Gibbons said.
“The bureau cites the failure of Lynx Air as an example of market challenges but ignores the very reasons for the failure as stated by Lynx itself: its insolvency was attributable, in part, to a difficult economic and regulatory environment including increasing airport charges.”
Gibbons says these government-led issues continue today as the Canadian market contains high mandatory third-party fees that drive up ticket prices for the average Canadian.
WestJet is instead calling on the federal government to undertake a comprehensive review on whether the user-pay model for aviation infrastructure works for a modern Canada and calling on Ottawa to freeze all mandatory government fees and charges until a review is complete.
A final recommendation includes ceasing the collection of rent from Canadian airports as a duplicative charge that is non-transparent in its use.
‘Why even bother?’: Calgary airline analyst
Calgary airline analyst Rick Erickson says this report is “nothing new” and the findings are always the same.
He admits Canadians are interested in the state of competition in the country but questions why it will take until June of next year to complete.
“That just slays me, how it could even take that long,” Erickson said.
“But honestly, why even bother? The findings are always the same.
“Look at the size we are in Canada. This will be a finding that we’re a large country in aerial size, a small population strung across America. We have a linear airline network that causes problems in this business unlike the situation in Europe or the United States where there are lots of hubs and you can get much shorter flights, less cost and more competition.”
Erickson says there are barriers to entry in the Canadian airline market as well, noting many of the high costs come from the federal government.
“If you look at the cost of an airline ticket, roughly $80 of every single airline ticket sold in Canada for domestic services are for fees and taxes,” he said.
“We pay for everything. We pay for airport improvement fees on the use of the airport, which goes to the airport authority, they in turn take most of that money and pay the federal government rent on the airports.”
Erickson says any Canadian airline carrier can only be 49 per cent foreign-owned and 25 per cent owned by a single entity.
“So yes, there are lots of players who go out who look at the Canadian market and say, ‘Hey, that might be an interesting place for us to go into business,’ but with only 25 and 49 per cent ownership, it’s not attractive to those carriers,” he said.
“If a foreign carrier is 100 per cent foreign-owned, it can only fly domestically in Canada, not internationally to compete with WestJet or Air Canada, so that might be one of the findings.”